As Pacific Gas & Electric faces the threat of tens of billions of dollars in wildfire liabilities, energy analysts are starting to ask what might happen if the utility is forced into bankruptcy — including the effects on its gigawatts' worth of renewable energy power-purchase agreements.

That’s the question that Credit Suisse analysts Michael Weinstein and Khanh Nguyen raised in a Monday note, highlighting the potential exposure of Consolidated Edison and other owners of large-scale solar and wind projects selling their power to PG&E under long-term power-purchase agreements. Con Ed in particular could see as much as 10 percent of its earnings at risk if its PPAs with PG&E are threatened, the analysts noted.

PG&E is the largest offtaker for Con Ed’s renewable energy portfolio, at about 29 percent of contracts. And the average PPA rate for those projects is about $197 per megawatt-hour, “significantly above market rates for new solar” that are closer to $25-$30 per megawatt-hour, the analysts noted. Other companies that could be impacted include NextEra and NextEra Energy Partners, the analysts wrote.

Of course, for any of these threats to materialize, PG&E would have to file for bankruptcy protection, and the bankruptcy process would have to lead to these PPAs being renegotiated in a way that reduces their revenues and value. And right now, neither of those eventualities is close to certain, Michael Weinstein, utility and alternative energy analyst for Credit Suisse, said in a Tuesday interview.

“Most investors consider this a pretty remote risk — but it was worth discussing,” he said. PG&E had already been facing the threat of bankruptcy due to its possible exposure to liability for last year’s Tubbs Fire in Northern California wine country, as well as smaller fires that state investigators have blamed the utility for starting.

Then, two weeks ago, another deadly fire — the Camp Fire, which has claimed 79 lives with more than 600 people still missing — broke out in PG&E territory. Two days later, PG&E disclosed that it had experienced a transmission system failure near the time and location of the fire’s origin, indicating it may have been the cause of the blaze. PG&E also disclosed that it had considered de-energizing its power lines that day, but decided not to shut them down despite the risk of high winds and dry conditions.

Shares of PG&E took a nosedive last week, after it drew down all $3.1 billion of available cash from its revolving credit facilities. Financial analysts noted that the move could be a precursor to a decision to file for bankruptcy protection, given PG&E’s exposure to as much as $15 billion in wildfire liabilities from last year’s devastating wildfires, and the potential that it could face similar or larger liabilities if it’s found at fault for starting the Camp Fire.

Weinstein noted that California regulators and policymakers have banded together to try to prevent a PG&E bankruptcy. State law SB 901, passed in September specifically in response to the 2017 wildfire season, would allow PG&E to issue bonds to pay for the costs of last year’s wildfires, backed by the ability to raise rates on customers.

Last week, California Public Utilities Commission President Michael Picker took the unusual step of declaring that regulators would take significant steps to avoid a PG&E bankruptcy. Picker said the CPUC would do that by using the powers given to it by SB 901, as well as by asking the legislature to alter the law to allow PG&E to raise bonds to pay for fire damages.

But as Credit Suisse’s Weinstein noted, there may be a limit to what the CPUC can do to help PG&E manage wildfire liabilities that have been placed at anywhere from $7 billion to $15 billion, plus an unknown amount for the Camp Fire — a figure that actually exceeds PG&E’s admittedly depressed market capitalization right now.

“The amount of financial damage out there probably requires more legislative attention than regulatory attention,” he said. California’s legislature wasn’t able to do anything about changing the state’s “inverse condemnation” legal precedent, which holds utilities liable for damages from fires caused by their equipment even if they aren’t at fault, he noted. And while SB 901 did contain some provisions for the CPUC to apply a financial “stress test” to future wildfire liabilities, to avoid undermining the utility’s ability to keep running, the law as written only allows this to happen for fires that start in 2019 or later — another issue that may have to be taken up in an emergency legislative session later this month.

Even if PG&E is forced into bankruptcy, it’s not clear how that might affect the PPA contracts it holds, let alone the rest of the ongoing business needed to keep the grid running safely and reliably. But as Weinstein noted, there is a precedent for this — PG&E’s 2001 bankruptcy during the state’s energy crisis — and in that case, “it seems like historic precedent is in favor of the PPAs,” he said.

This bankruptcy court document (PDF) lays out in great detail the amended PPAs that PG&E entered into as part of its 2001 bankruptcy filing. But in broad terms, “the PPAs were upheld in that bankruptcy — they did not get curtailed or anything like that,” he said. “The principle that I think applied is that they’re providing an essential service and essential services, as in running the business, usually takes precedence over bondholders.”

But what happened in 2001 may not necessarily hold sway over how a PG&E bankruptcy might be handled in today’s courts, he said. In particular, a case now awaiting appeal at the 6th Circuit U.S. Court of Appeals, involving bankrupt FirstEnergy Solutions and the Federal Energy Regulatory Commission, could have a significant impact on how PPAs and other utility obligations are managed through the bankruptcy process, as attorneys with K&L Gates pointed out in a September article.

Even without bankruptcy, PG&E’s current financial situation and worsening credit rating is likely to have ripple effects for owners of PPAs with the utility — a threat that PG&E CEO Geisha Williams brought up this summer amidst the utility’s efforts to secure legislative relief from its worsening situation.

This effect is already beginning to be seen, Bloomberg reported last week. In September, Fitch Ratings saw a PG&E credit downgrade as reason to cut the ratings of senior notes of a solar facility owned by Berkshire Hathaway that serves the utility. Last month, Moody’s downgraded the same facility’s senior secured debt, saying it was “driven entirely” by the further weakening of PG&E’s credit quality.